Off Script Economic Discussion Summary: Markets, Tariffs, and Economic Outlook

Policy Developments and Political Analysis

Tariffs and Trade Policy

• Trump's trade policy philosophy: Neil emphasized Trump views tariffs as a dial rather than an on/off switch
• Core belief: Trump fundamentally believes trade deficits are bad in themselves and has held protectionist views since the 1980s
• Liberation Day: April 2nd marks the deadline for reciprocal tariff announcements
• Recent tariff actions:
  • 25% tariffs on countries importing oil from Venezuela (effective April 2nd)
  • Auto tariffs of 25% (effective April 3rd)
  • Accelerated timeline for copper tariffs using Section 232 authority

"I think the idea that Trump is going to be done with this I think is a bit foolish to believe... everything is a constant negotiation." - Neil

Political Strategy

• Trump administration likely using tariff threats to:
  • Force countries to the negotiating table
  • Pressure companies to make domestic investment announcements
  • Maintain negotiating leverage

Economic Conditions and Outlook

Current Economic Trajectory

• Data has been deteriorating for approximately six months
• Business investment: Non-residential fixed investment contracted in Q4
• Consumer spending: Real incomes net of transfers up barely 1% at annual rate over last three months
• Government spending: State and local governments have exhausted pandemic relief funds
• Housing market: Remains frozen with 6.5% mortgage rates making affordability difficult

Labor Market Concerns

• Slowing labor metrics: Total income growth (jobs × work week × hourly earnings) has been weakening
• Private wages and salaries: Up only about 3% over the last year, below the federal funds rate
• Unemployment forecast: Could rise a tenth of a percent every couple months through summer
• Broadening job cuts: Beyond just tech sector to include retail, airlines, financial industries

Market Analysis and Sentiment

Investor Sentiment

• Conference Board sentiment data: Shows extremely negative investor expectations
• Net expectations (difference between those expecting stock increases vs. decreases) at lowest level since 2010
• This extreme pessimism historically serves as a contrarian indicator with a statistically significant t-stat of -2.5

"The net expectations, which is the difference between people expecting an increase in stock prices and an actual decrease in stock prices, is the lowest that we've seen since 2010." - Jeff

Market Trends

• Large/mega caps: Still showing positive trends despite some deterioration
• Small caps: Experiencing trend reversal (negative)
• Technical setup: Oversold conditions suggest potential rally to 50-day moving average

Federal Reserve Outlook

Fed Policy Expectations

• Rate cuts: Panel expects Fed to cut four times in 2025, more than current market consensus
• Timing: Cuts likely to begin in summer as labor market weakness becomes more apparent
• Trigger points: Rising unemployment and continued economic weakness will likely force Fed's hand
• Fed vs. Trump "put": The threshold for Fed intervention is higher than in previous Trump administration

Overall Market Outlook

The panel suggests markets are at an interesting inflection point. Extreme negative sentiment combined with oversold conditions create a potentially bullish setup for a tactical rally, possibly back to the 50-day moving average.

However, they caution that the quality and breadth of any rally will determine if it represents a resumption of the bull trend or the formation of a top. While tariff uncertainties create short-term volatility, the sentiment extreme may have already priced in much negative news.

In the medium term, economic deterioration continues to be a concern, particularly in the labor market where rising unemployment could force Fed intervention by summer. The panel's base case appears to be a near-term tactical bounce followed by more challenging conditions later in 2025 as economic weakness becomes more pronounced.